NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Taxation and Aggregate Factor Supply: Preliminary Estimates

Michael J. Boskin, Lawrence J. Lau

NBER Working Paper No. 221
Issued in December 1977
NBER Program(s):   PE

This paper extends the analysis of aggregate factor supply to a model which accounts simultaneously for the consumption/saving and labor/leisure choices. A translog utility maximization model is used to derive the set of consumption and leisure demand equations; these in turn are estimated on U.S. aggregate time series data. The empirical results are striking: we estimate (quite precisely) substantial own and cross price elasticities for current and future consumption and labor supply. The implied interest elasticity of saving is approximately 0.4.The results suggest that previous studies of labor supply and/or consumption which have ignored cross-price effects are mis-specified. We also strongly reject the hypothesis that implicit social security had no effect on factor supply.

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Document Object Identifier (DOI): 10.3386/w0221

Published: Boskin, Michael J. and Lawrence J. Lau. "Taxation and Aggregate Factor Supply: Preliminary Estimates." U.S. Treasury Compendium of Tax Research, 1978.

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